Economics of Inequality (Master PPD & APE, Paris School of Economics) Thomas Piketty Academic...
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Economics of Inequality (Master PPD & APE, Paris School of Economics) Thomas Piketty Academic year 2013-2014
Economics of Inequality(Master PPD & APE, Paris School of Economics)Thomas PikettyAcademic year 2013-2014
Lecture 3: The dynamics of capital/income ratios: =s/g (Tuesday December 10th 2013)(check on line for updated versions)
Summing up: what have we learned?National wealth-income ratios n=Wn/Y followed a large U-shaped curve in Europe: 600-700% in 18c-19c until 1910, down to 200-300% around 1950, back to 500-600% in 2010U-shaped curve much less marked in the USMost of the long run changes in n are due to changes in the private wealth-income ratios =W/Y But changes in public wealth-income ratios g=Wg/Y (>0 or 0 or g long run saving rate st s = g/r, t = /r = s/g
(on these models, see next lecture and PZ 2013 section 3)
22Gross vs net foreign assets: financial globalization in actionNet foreign asset positions are smaller today than what they were in 1900-1910 But they are rising fast in Germany, Japan and oil countriesAnd gross foreign assets and liabilities are a lot larger than they have ever been, especially in small countries: about 30-40% of total financial assets and liabilities in European countries (even more in smaller countries)This potentially creates substantial financial fragility (especially if link between private risk and sovereign risk)This destabilizing force is probably even more important than the rise of top income shares (=important in the US, but not so much in Europe; see lecture 5 & PS, Top incomes and the Great Recession, IMF Review 2013 )
Market vs book value of corporationsSo far we used a market-value definition of national wealth Wn : corporations valued at stock market pricesBook value of corporations = assets debtTobins Q ratio = (market value)/(book value) (>1 or 1 if immaterial investment not well accounted in book assets But Q can be systemativally